Check Before You Buy

Despite the negative publicity, there is a place for PPI – and if you do qualify for a payout, the short-term lifeline it offers can help you survive a financial crisis.

But before signing up, you need to do your research.

The cheapest policies can be so restrictive that it is almost impossible to claim successfully, so you need to read the small print to check the policy you choose is right for you.

When comparing quotes, make sure you are comparing the same level of cover for the same period of time, and check if the premiums will go up over the term of the loan or mortgage.

Also find out whether your monthly repayments will be paid for 12 months, two years or longer if you have to claim as well as how long you have to wait before you can claim.

Most people don't realise that their policy only covers them for the minimum monthly repayments which can be quite low in the case of credit cards leaving you with a huge debt over-hang at the end of the period you were covered for – typically 12 months.

When looking for a policy, note that it is generally cheaper to get stand alone cover sold by independent companies rather than buying from the lender.

Alternatives to PPI and MPPI

As PPI only covers one debt, it is very inflexible, but if you decide to get rid of it altogether, you must remember that it’s still important to protect finances and debts against the unexpected. 

In many cases, an income protection policy, designed to pay out tax-free replacement income if you are off work due to sickness, accident or injury, should be the first choice.

This tends to be a better – and cheaper – alternative, plus unemployment cover can also be taken out as an add-on. Perhaps more important is the fact that it's flexibility means you can cover more than one loan or credit agreement.

It’s also worth bearing in mind that despite the negative publicity around PPI, mortgage payment protection insurance (MPPI) may be a product worth considering.

MPPI policies pay your mortgage for a year – or sometimes two years – if you can’t work because of accident, sickness or redundancy. Do check how long you have to be off work before you can claim.

However, don’t rush into signing up to any protection policy before checking what is covered by your employer – to check you are not over-insuring yourself.              

Finally, when buying any protection product, price should not be the only consideration. You should also look for the policy which best suits your individual circumstances.